Eye on the States: The British are coming, and they're ready for business

The market for state and local outsourcing services is in full swing and accelerating every day. Florida and Texas are stirring up mega human services outsourcing opportunities, which easily could be $1 billion-plus awards when they hit the street. Virginia is inviting industry to submit partnership proposals to assist the state after the initial phase of its IT consolidation project. Numerous contract re-bids for Medicaid business process outsourcing work. North Carolina and other states could end up tipping the balance of outsourcing market leadership. Hot markets produce more intense competition and attract new competitors. Accenture Ltd. has established beachheads in state and local outsourcing markets such as health care. New players, such as Titan Corp., are walking away with significant new IT infrastructure outsourcing business from local governments. But so far, little is new about the way these companies are approaching the state and local outsourcing market. For the most part, their models are quite conventional.That can't be said for some new competitors in state and local outsourcing. No one represents "new and different" better than global outsourcing heavyweight Serco, based in the United Kingdom. Serco has already won outsourcing contracts with local governments, including Seminole County, Fla., Chicago and San Francisco, for such services as fleet management, revenue collection and parking meter processing. If Serco continues to be this successful, it could shake up the state and local outsourcing market here by directly challenging market leaders Affiliated Computer Systems Inc. and Electronic Data Systems Corp.Serco has more than 37,000 employees and more than 600 contracts in 37 countries, but size is not its primary weapon. What really sets Serco apart is its innovative approach to the market and the capabilities of its outsourcing business model to create value. The latter has been especially important in fueling Serco's growth to more than $2 billion in annual revenue, primarily in government outsourcing and achieved largely without acquisitions. About 12 percent of this comes from state and local business. Serco operates hospitals, runs transport systems, manages traffic control systems, provides defense services, manages educational institutions and operates drivers licensing exam centers. The company is one of the world's largest private-sector providers of air traffic control services and handles more than 29 million call-center calls annually.Perhaps most important, Serco walks the private-public partnership walk. With roots in the Margaret Thatcher privatization era, Serco has been at the forefront of some of the most innovative global public-private outsourcing partnerships. For example, the company has raised billions in financing for public-private partnerships, making more than $1 billion in capital investments around the world. Few, if any, U.S. outsourcing companies can make such a claim.Unlike many players that struggle to leverage their federal businesses into state and local, or vice versa, Serco moves seamlessly across levels of government. Its capabilities in change management, risk management, technology integration and asset management are highly transferable.With so many of its employees coming from government -- more than 75 percent of its work force is composed of former government workers -- it really "gets" government. Add to this a highly experienced, proven senior executive team that grew up in the outsourcing business, and you have a company that lives and breathes public-sector outsourcing.State and local buyers will benefit from the greater competition. The same can't be said for some incumbent outsourcing companies that run the risk of becoming victims of their own myopic thinking.Thomas Davies is senior vice president at Current Analysis Inc. in Sterling, Va. His e-mail address is tdavies@currentanalysis.com.